Bitcoin Core contributor Jonas Schnelli was recently featured in a panel discussion about improvements to Bitcoin at the 2016 MIT Bitcoin Expo. During the Q&A portion of the panel, an audience member asked the participants about the previous presentation by the World Bitcoin Network’s James D’Angelo in which he articulated the idea of replacing miners with elected officials.
In general, the panel, which also featured Blockstream core tech engineer Mark Friedenbach, Blockstream mathematician Andrew Poelstra and Lightning Network co-creator Joseph Poon, had a negative reaction to the concept of using democracy to handle changes to Bitcoin’s consensus rules. Schnelli used his experience with direct democracy in Switzerland to make his points.
Voting Requires an Informed Public
Although Schnelli has a positive take on Switzerland’s use of direct democracy, he does not view the system as a useful option for Bitcoin. In his view, the intricate, technical details of Bitcoin make direct democracy a poor choice for governance. Schnelli explained:
“Voting or democracy is good, but I live in Switzerland ‒ one of the only countries where we have direct democracy ‒ and with democracy you need to understand the topic you’re going to vote about. Who is able to vote about Bitcoin technical topics? Even the miners ‒ they don’t really get the technical essence of the problem.”
Indeed, many representatives of Bitcoin’s network hashrate have decided to default to Bitcoin Core on development issues. Although there is widespread support for a 2-megabyte block size limit among Chinese exchanges and mining pools, those companies are, as of now, willing to accept that change only if it comes from Bitcoin Core.
On the topic of voting on changes to the Bitcoin protocol, Schnelli added:
“Voting means you really need to fully understand what you’re going to vote about. As soon as you say everybody needs to vote ‒ everybody needs to study the problem for a couple of days ‒ is it realistic? Who is able to judge?”
Lobbying and Propaganda Come with Voting
Schnelli also is uncomfortable with bringing some of the negative aspects of politics into development decisions related to Bitcoin. He noted:
“With voting comes also, kind of, lobbying ‒ people and companies collecting money to influence people. I see that back in Switzerland where we vote about law changes, not the president. It’s all about money and propaganda.”
Trace Mayer, a longtime investor in Bitcoin and Bitcoin-centric companies, recently shared similar thoughts on who should be making decisions related to the protocol. In his view, there is no competition for the experienced contributors to Bitcoin Core. Mayer also has stated that Bitcoin is a meritocracy, which is a form of governance where power is awarded to individuals based on their abilities.
Proponents of a more democratic approach to Bitcoin governance, such as Coinbase CEO Brian Armstrong and Bitcoin Classic developer Gavin Andresen, say their vision of Bitcoin governance would allow the protocol to evolve and adapt more efficiently over time.
Bitcoin Is a Technical Topic
Schnelli summed up his thoughts on democracy for Bitcoin governance during his final comments in regard to the audience member’s question. He stated:
“I mean, I like [the direct democracy in Switzerland], but it’s this political thing; it’s not technical stuff. It’s something everybody can talk about. But can the people in Bitcoin talk about what they really want?”
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, NASDAQ, RT’s Keiser Report and many other media outlets. You can follow@kyletorpeyon Twitter.
The post Jonas Schnelli on Why Elected Officials May Not Be Good for Bitcoin appeared first on Bitcoin Magazine.
OpenBazaar is integrating the InterPlanetary File System (IPFS) into their decentralized online marketplace. While no official announcement about this move has been made, OpenBazaar developer Chris Pacia, who is currently working on the IPFS integration, has shared some of the details related to this change with Bitcoin Magazine.
According to Pacia, the main advantage of integrating IPFS into OpenBazaar will be the increased availability of storefronts. Currently, a store operator must maintain his or her own server at all times or pay someone else to do it.
What Is IPFS?
IPFS is a hypermedia distribution protocol that enables the creation of distributed applications. The team behind IPFS is creating a peer-to-peer file system that can be accessed by all of the computing devices in the world. The brains behind this new protocol, Stanford graduate Juan Benet, has said that IPFS allows people to create websites and web apps with no central server. He added, “They can be distributed just like the Bitcoin network is distributed.”
What Are the Advantages of IPFS for OpenBazaar?
Since OpenBazaar is a marketplace with no central server, IPFS appears to be a solid option for hosting storefronts.
Pacia agrees with this sentiment. He told Bitcoin Magazine, “The main advantage is data will become more distributed and most of it should be viewable even if the originating node is offline.”
Pacia went on to describe the current issues with OpenBazaar when it comes to opening and operating a store on the network:
“We have a situation now where you have to fetch store data from only one person, and if they have a slow or buggy connection (or if they get attacked), then you can’t access that data, despite potentially hundreds of other users having that data from a previous download.”
Essentially, IPFS will allow OpenBazaar users to connect to specific stores via many other peers who already have that data rather than just the owner of the store.
“So IPFS seeds everything you download which makes the data much more permanent. It also provides a more robust DHT implementation than what we have written, and it’s better to spend our resources collaborating than trying to maintain our own.”
Many early users of OpenBazaar have complained about having to operate a server 24/7 to keep their stores “open” on the network, which is why the removal of this requirement has been a top priority for the development team behind the project.
Layering Anonymity on Top
Other commentators have wondered whether Freenet may be the best option for OpenBazaar, but it appears the network’s developers have no intention of going in that direction at this time. Pacia noted, “I don’t know [enough] about Freenet to comment on it. But what attracts us to IPFS is its scalable approach to data replication.”
Although OpenBazaar launched without native support for anonymizing networks such as i2p or Tor, OpenBazaar project lead Brian Hoffman recently reiterated the development team’s dedication to privacy.
“Anonymity can be layered on top of [IPFS],” Pacia told Bitcoin Magazine. “It won’t be too much work to enable onion nodes to connect to each other.”
OpenBazaar’s support for IPFS is not strictly theoretical, as code related to this change is already available on GitHub.
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured onVICE Motherboard, Business Insider, NASDAQ, RT’s Keiser Reportand many other media outlets. You can follow@kyletorpeyon Twitter.
The post OpenBazaar Integrating InterPlanetary File System to Help Keep Stores Open Longer appeared first on Bitcoin Magazine.
One nonprofit organization is going above and beyond the call of duty when it comes to empowering underprivileged women in Afghanistan.
Code to Inspire (CTI), led by founder Fereshteh Forough, started an after-school program in January 2015 followed in November of the same year by the opening of its first coding school for girls in Herat, Afghanistan. Forough’s aim was to empower half of the Afghanistan population through education to improve the economy, while putting underserved women on a path to financial independence.
Currently providing a safe educational environment for 50 female students aged 15-25, Code to Inspire is helping change the way women are seen in a country where women face barriers among conservative families and extremists.
Speaking to Bitcoin Magazine, Forough said it can be challenging to work in an environment where women are not encouraged to receive the same education as their male counterparts.
“Girls in Afghanistan lack safe places to study and learn. Girls in Afghanistan lack employment opportunities, specifically in technology,” she said. “Only 16 percent of Afghan women are employed while 2014 saw only 20 percent of public universities taking in female students.”
In a bid to bridge the gap between female and male education, Code to Inspire’s goal is to improve women’s economic and social advancement in Afghanistan’s growing tech industry. By offering courses in coding, access to technology and professional resources in addition to job placement, CTI students have a greater chance of attaining employment that is both financially rewarding and socially accessible.
“Access to the wealth of the global technology economy enables CTI students to add unique value to their households and their communities, and to challenge the traditional gender roles in Afghanistan with the best argument out there–results,” said Forough.
In a part of the world which has islands of human population separated by forbidding terrain, where safety and security make it impossible for women to travel, and where wired Internet isn’t common, phone coverage is the next best thing. So much so, that according to recent statistics from Afghanistan’s Ministry of Communication and Information Technology, more than 89 percent of the population has telecom coverage with 23.2 million phone users in the country out of Afghanistan’s population of around 33 million.
Not only that, but 51 companies have been issued licenses to provide Internet services while around 3 million people (10 percent of the country’s population) have access to the Internet.
The Internet’s universal accessibility allows women the opportunity to work from home; however, in order to do so they have to be able to offer something to potential employers, which is where Code to Inspire is making a positive change.
“In areas where women’s travel can be heavily restricted, the ability to work remotely is a key tool in the push for equality,” said Forough.
Considering that CTI has only been around since 2015, it has managed to receive funding and donations through individuals and corporate donors who believe in its mission to help the women in Afghanistan.
“Last summer, CTI did its first online crowdfunding through Indiegogo where we raised $22,000,” said Forough. “We’ve also received donations from Github, Malala Fund, GooglersGive program, BitFury, and 20 laptops from Overstock.”
Using Bitcoin for Financial Freedom
Of course, once the women graduate and find jobs through the Internet there is still the issue of how they get paid.
In Afghanistan payment processing can be quite difficult. PayPal does not operate in Afghanistan, and while Western Union is available, its fees are very costly. Forough said that to deal with the issue of payment they turned their attention to Bitcoin.
“With my former foundation Digital Citizen Fund, we used to pay our content providers in Afghanistan through our corporate partner BitLanders, which was formerly known as Film Annex, in U.S. dollars,” she said. “The majority of users were girls who were too young to have a bank account or they were unbanked, so to make the payment process faster and more reliable, with lower fees per transaction, we switched to paying our users in Bitcoin.”
The use of Bitcoin is an important initiative for Code to Inspire, as it provides women in developing countries with a powerful tool that enables them to connect quickly and affordably with the global economy.
Not only are women in Afghanistan gaining access to an education, but where it is taboo for women to step out of their doors unattended, Bitcoin allows them to fully participate in the world.
Code to Inspire’s objective is financial inclusion, which is not just about having a bank account. For an economy to be inclusive, women need equal access to opportunity, which is where the nonprofit is making headway.
“What social media did for communication, cryptocurrency promises to do for women’s autonomy. In a society that lacks banks, blockchain technology like Bitcoin offers a secure, transparent way to add value,” said Forough. “Most importantly, it affords those marginalized by the brick-and-mortar finance system a chance to participate in the economy on their own terms.”
While it is easy for women in Afghanistan to sign up to access Bitcoin, Forough notes that there are challenges within the country that make it difficult for people to embrace digital currencies.
“There is no platform that can support converting Bitcoin to Afghanistan’s currency,” she said.
This, however, seems to be a minor issue considering the massive strides that Afghanistan has made for gender equality over the past 15 years. Once women were barred from receiving an education, working outside the home or even dressing as they saw fit.
During the Taliban regime there were only 900,000 male students in the country; however, this has now increased to 9 million students including 4.2 million females. Additionally, during the 2014 elections, 40 percent of those who voted were women; and four out of 25 cabinet ministers are now women.
“Thanks to recent technological innovations it doesn’t matter where you are located as long as you can access the Internet,” said Forough. “If you combine education with technology, students will be more innovative and productive so they can access the most up-to-date information and be inspired by the achievements of others.”
The most important thing for Forough is that by working online and getting paid online, the women can become financially independent, a goal that Code to Inspire continues to accomplish.
The post Code to Inspire: Bitcoin Gives Afghan Women Financial Freedom appeared first on Bitcoin Magazine.
Segregated Witness has entered itsfinal testing stage before roll-out on the Bitcoin network. That isgood news, most importantly because the innovation introduces a capacity increase to allow for more transactions on the network, while it also solvestransaction malleability.
And, it introduces script versioning ‒ an extension to the Bitcoin protocol that allows for an entire new category of innovation.
One of these imminent innovations has been on the top of several Bitcoin developers’ wish-lists for some time: Schnorr signatures.
With the impending release of Segregated Witness, implementation of the Schnorr cryptographic signature algorithm might follow soon after, potentially improving Bitcoin’s scalability, efficiency and privacy, all in one go.
First, a brief re-cap: what are signatures?
At the heart of Bitcoin lies the mathematical trick called “public key cryptography,” a cryptographic system that uses two kinds of “keys” (really strings of numbers): private keys and public keys.
A private key and a public key are mathematically linked. But while it’s very easy to produce a public key from a private key, it’s practically impossible to produce the private key from a public key. It’s a “one-way street.”
In order to spend bitcoins from a particular Bitcoin address, one must prove “ownership” (or: knowledge) of the private key that refers to the public key associated with that address. And to prove ownership of a private key, without having to reveal that private key, a cryptographic signature is used.
A signature is created by performing a calculation using the transaction data and the private key. And here’s where the magic of public key cryptography comes in: Knowing the public key, anyone can see if the correct private key was used to create the signature. Without ever needing to know the private key itself.
The “owner” of the private key can therefore sign a transaction and spend bitcoins without worrying that someone else can take that private key and steal the bitcoins; the private key is never exposed, and the signature is only valid for that specific transaction.
(For a more elaborate explanation of public key cryptography in Bitcoin, seethis article. Or, just keep reading. While the basic signature concept matters, the details are not crucial for the purpose of this article.)
So what, then, are Schnorr signatures?
Schnorr, named after its inventor Claus-Peter Schnorr, is a signature scheme: the series of mathematical rules that link the private key, public key and signature together. Many cryptographers consider Schnorr signatures the best in the field, as they offer a strong level of correctness, do not suffer from malleability, are relatively fast to verify, and ‒ importantly ‒ support multisignature: several signatures can be aggregated into a single, new signature.
However, until now it has not been possible to utilize Schnorr in Bitcoin. Another type of signature scheme, Elliptic Curve Digital Signature Algorithm (ECDSA), is baked into the Bitcoin protocol, and changing that would require a hard fork.
That’s where Segregated Witness comes in.
With Segregated Witness, all signature data is moved to a separate part of the transaction: the witness, which is not embedded in the “old” Bitcoin protocol. And thanks to script versioning, almost any rule applied in the witness can be changed through a soft fork. Including the type of signature scheme used.
This opens the door for Schnorr.
The Schnorr property that stands to benefit Bitcoin most is multisignature aggregation.
Many Bitcoin transactions include multiple inputs, referring to the addresses bitcoins are sent from. (This can be compared to how cash payments often consist of multiple smaller bills and coins to pay a larger sum of money.) Right now, all these inputs require their own signature, which means all these signatures must be included in a transaction, all must be transmitted over the network, and all must be included in a block.
With Schnorr, however, all inputs will instead require only one combined signature to represent all these different signatures. This offers an obvious data advantage, as only one signature must be included in a transaction, only one must be transmitted over the network, and only one must be included in a block. This means there’s more room for transactions.
Segregated Witness, as proposed by Bitcoin Core, offers a (roughly) 75 percent discount on all data included in the witness rather than the original block. One megabyte of witness data is therefore “weighed” as .25 megabyte, which would leave room for .75 megabyte transaction data in the original block, for a total of 1 megabyte.
If aggregated Schnorr signatures reduce the total size of witness data, say from 1 megabyte to .5 megabyte, this .5 megabyte would then be discounted to 0.125 megabyte, leaving room for up to 0.875 megabyte in the original block. (A capacity increase of about 17 percent.)
The exact amount of added room depends on the types of transactions included in blocks. But rough estimates by Bitcoin Core developer Eric Lombrozo suggest that Schnorr signatures could eventually increase total capacity 40 percent or more – that’s on top of the added 60 to 100 percent already offered by Segregated Witness.
The capacity increase as described above is true for regular transactions, as many transactions include more than one input. But the advantage can be even greater in the case of multisig transactions ‒ transactions where a single input itself requires several signatures (typically from different people).
As with normal transactions, no more than a single signature needs to be included in any multisig transaction. No matter how many signatures are required, no matter how many people involved.
This opens the door to vastly more complex smart contract constructions, for a fraction of the data normally required. Whether it’s two-of-three, three-of-fifteen or hundred-of-hundred types of multisig transactions, all will carry the same amount of signature data as a typical single-signature transaction.
And third, Schnorr signatures could offer another interesting benefit: incentivized privacy.
As mentioned, one transaction can include multiple inputs. Most commonly, these inputs refer to addresses that are all controlled by the same person. (As per the multiple bills and coins example.)
But a privacy-enhancing trick invented by Bitcoin Core developer Gregory Maxwell, CoinJoin, allows different users to combine all their transactions into a single transaction. That one transaction will include multiple inputs coming from different payers, which sends money to multiple outputs, belonging to different payees.
(This can be compared to a group of people throwing their bills and coins together in a basket, which they use to go shopping in different stores to buy the products all of them want. Each individual will get the goods that individual paid for, but it’s unlikely any individual’s “own” bill paid for the product that individual bought.)
If done right, CoinJoin is a great way to improve privacy on the Bitcoin protocol, as it becomes unclear which inputs paid which outputs exactly, let alone which person paid which person.
CoinJoin is not new a new concept. But up until now CoinJoin was typically a bit of a hassle. As such, most people don’t bother. And since most people don’t bother, those who do bother could automatically be marked as suspicious; potentially defeating the purpose of using CoinJoin in the first place.
But Schnorr signatures can add a new advantage to CoinJoin. It enables all participants in a CoinJoin transaction to not only combine their transactions, but to also combine their signatures. And doing so means the size of the transaction would actually be smaller than all individual transactions combined. Which, in turn, means miners would typically charge a smaller fee to process the transaction.
With Schnorr, therefore, CoinJoin would not onlyincrease privacy, but also – importantly – lower the costs for everyone involved. Indeed, there would be a cost benefit to use the most private option, which might just make it the go-to option for everyone – vastly increasing Bitcoin privacy for all.
Note: The process of implementing Schnorr signatures in Bitcoin is still in the concept phase. While most Bitcoin Core developers seem to believe Schnorr signatures can be safely deployed in Bitcoin, it is too early to say with certainty.
Thanks to Bitcoin Core developer andBlockstream co-founder Dr. Pieter Wuille for providing information, and Bitcoin Core developer andCiphrex CEO Eric Lombrozo for proofreading and further suggestions.
The post The Power of Schnorr: The Signature Algorithm to Increase Bitcoin’s Scale and Privacy appeared first on Bitcoin Magazine.
Bitcoin Press Release: CEX.IO Bitcoin exchange launched trading Ethers, currency used by the Ethereum decentralised platform that runs smart contracts. CEX.IO users are now able to buy and sell ETH for Bitcoins and US Dollars.
April 13th, 2016, — Following trends, CEX.IO has expanded the range of currencies traded on the exchange with ETH/BTC and ETH/USD. Famous for user-friendly experience of buying cryptocurrency with payment cards, CEX.IO opened an opportunity not only to trade Ether for Bitcoin, but also to easily buy ETH using Visa or MasterCard.
“Ethereum is a unique and one of the most promising projects within blockchain industry,” Oleksandr Lutskevych, CEO and Co-Founder of CEX.IO. “As the Ethereum market develops, we found it extremely important to support innovations and launch Ether trading on CEX.IO.”
At the moment of writing, market capitalisation of ETH is on the second place after Bitcoin, and is over $600,000,000. ETH average market price is about $8, which is many times higher, than most altcoins on the network.
Ether is crucial for developers who want to build apps using the Ethereum blockchain, as well as for users who are aiming to access and interact with smart contracts. In their turn, professional traders consider using ETH volatility in their trading strategies.
CEX.IO is a UK-based Bitcoin exchange established in 2013. CEX.IO claims to provide the best experience of buying Bitcoins with credit cards and debit cards. The assertion is based on the exchange’s ideal conditions for quick and successful processing of card payments, the wide range of acceptable payment cards, and numerous positive feedbacks from users. CEX.IO provides steady services backed by cold cryptocurrency storage, financial viability, and profound legal compliance.
To learn more please go to: https://cex.io/
Name: Helga Danova, Communications Officer
City and Country Location: London, UK
CEX.IO is the source of this content. Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to FDIC and other consumer protections. This press release is for informational purposes only. The information does not constitute investment advice or an offer to invest.
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Comptroller of the Currency Thomas J. Curry, who heads an independent department in charge of supervising all U.S. national banks, stated in a speech April 7 at the American Banker Retail Banking Conference that “it’s important that regulators are open to the changes that are underway in both technology and business practices,” according to prepared remarks shared with Bitcoin Magazine.
The comptroller signalled a shift in attitudes toward fintech regulations, an umbrella term used to describe companies or services that use a combination of finance and technology, with Bitcoin being the most prominent example.
Announcing a number of new initiatives, such as “innovator fairs” that aim to bring banks and nonbank innovators together with OCC experts, and the sponsorship of a forum on responsible innovation to be held in Washington on June 23, Curry made it clear that “[T]he Office of the Comptroller of the Currency [OCC] want[s] to support efforts by federal banks to innovate.” He added, “But we also want to be sure that they do so in a responsible way that doesn’t threaten the safety of the system or the financial well-being of bank customers.”
In his more striking remarks the comptroller stated:
“[I]t’s not unreasonable to characterize the change underway in the financial marketplace as revolutionary. But purists might point out that real revolutions sweep away existing institutions. That hasn’t happened,” he said, but warned: “without change, banks could go the way of other businesses that failed to adapt to changing times.”
In potentially historic closing remarks Curry stated:
“If there is a revolution underway in financial services … those of you in retail banking are on the frontlines. What I want you to know is that the OCC is ready to support you as you engage in the kind of responsible innovation that serves the needs of all financial consumers and makes our financial system stronger than ever.”
OCC is being hailed as the appropriate regulatory body to oversee an overhaul of outdated financial regulations, some as old as a century, to adapt to the changing needs of the 21st century and, in particular, to foster a welcoming environment for fintech innovation.
The remarks signal an overall change in attitude of both banks and regulators toward fintech just as London is declared the financial capital of the world for the second year running, beating New York by only 8 points out of 1,000 primarily because of London’s vibrant fintech sector.
British regulators have introduced fintech’s “most progressive, forward-looking regulatory regime” in the world, according to city minister and economic secretary to the U.K. Treasury Harriett Baldwin. She was commenting on the recent announcement of an unprecedented partnership between Barclays and Circle. U.S. regulators have noticed and they are now loudly asking for a shift in the way fintech companies are regulated.
The debate was opened by CFTC’s Commissioner J. Christopher Giancarlo, who hailed the benefits of blockchain and called for a light-touch regulatory approach similar to the strategy employed in the early days of the Internet. He made the remarks in a special address to the Depository Trust & Clearing Corporation 2016 Blockchain Symposium last week.
“[A] dramatic example of the potential benefits to regulators of blockchain technology is in the collapse of Lehman Brothers,” Giancarlo said.
Since then, the OCC issued a white paper calling for comments and suggestions on how to regulate “responsible innovation.” In opening remarks about the white paper, Curry stated:
“[R]apid and dramatic advances in financial technology are beginning to disrupt the way traditional banks do business. … At the Office of the Comptroller of the Currency (OCC), we are making certain that institutions with federal charters have a regulatory framework that is receptive to responsible innovation along with the supervision that supports it.”
Meanwhile, London races ahead. In a speech at Money 20/20 Europe, Hannah Nixon, managing director of U.K.’s Payment Systems Regulator, a first-of-its-kind independent regulator, highlighted Britain’s enthusiasm for financial innovation in stating:
“[W]e want to encourage technological innovation. Not for innovation’s sake, but to drive improvements for users, helping payment companies find new and ever more convenient ways for people to pay.
“In fact, we want the U.K. industry to become a center of innovation, to lead the world in the development of payment systems. And I believe the PSR can play a major part in that.
“We want people to look at U.K. payment systems and the PSR, and say, ‘We want to do it like that.’”
They have so far succeeded; consultancy firm Ernst & Young recently crowned London the “Fintech Capital of the World.” Moreover, while British banks earned a reputation in the Bitcoin community for being notoriously against granting bank accounts to Bitcoin and other digital-currency-related businesses, that too seems to be changing. The shift in attitude may be, in part, due to PSR.
Echoing criticisms often expressed in the Bitcoin community, Nixon stated:
“The evidence we gathered showed that wider financial crime regulations may be causing people to be overcautious about doing business with a third party.”
Although she warns that “we would need to show our teeth from time to time,” she states that PSR “won’t be taking direct action” because PSR is aware a number of banks are “planning to start offering indirect access or expand their current services.” One such bank may be Barclays which, in an unprecedented move, partnered with Circle.
“Historically, obtaining U.K. banking has been challenging for U.K. Bitcoin companies; however recent events show that this situation is beginning to change,” Obi Nwosu, managing director at Coinfloor, a British-based Bitcoin exchange, stated in an email.
The winds of change are, therefore, once again in the air. As more than $20 billion has been invested globally in fintech, and investment in Bitcoin companies saw its second best quarter ever in the first quarter of 2016, it is perhaps time to repeat the remarks of George Osborn, the Chancellor of the Exchequer, who, in a speech in 2014 declared: “We stand at the dawn of a new era in banking.”
The post US Comptroller of the Currency Calls for Innovative Regulations on Digital Currencies and FinTech appeared first on Bitcoin Magazine.
The Lightning Network is viewed by many as a serious improvement for Bitcoin in terms of scalability, but there are still plenty of critics of the system who do not believe it is destined for success. During a recent event at the Coinbase offices in San Francisco, Lightning Network co-creators Joseph Poon and Tadge Dryja answered some questions about potential weaknesses of this generalized network for payment channels.
One of the key criticisms Dryja and Poon attempted to debunk during the event was that bitcoins are essentially “tied-up” once they enter the Lightning Network. Poon was the first of the duo to respond to this potentially negative aspect of the network. He stated, “It’s not necessarily tied up in the sense that they can [still] spend it.”
Bitcoins on the Lightning Network are Useful
Dryja took Poon’s point to another level by pointing out that, in certain situations, bitcoins on the Lightning Network may actually be more useful than those on the Bitcoin blockchain. Dryja explained:
“It is tied up, as in it’s in this channel, but the thing is, having funds in channels that are on this network might be more useful than having a non-Lightning bitcoin because you can push it anywhere instantly.”
While on-chain transactions require confirmations before they’re considered secure, transactions on the Lightning Network are essentially settled instantly. According to Dryja and Poon, on-chain transactions are also expected to be much more expensive than Lightning transactions once the system goes live.
The belief that funds are tied up on the Lightning Network comes from a misunderstanding of how the system works. In the past, some have wondered whether opening a payment channel with Uber would be useful if you don’t use that particular car service often. This misses the point that the Lightning Network is a generalized platform for payment channels, which means users are able to route payments to practically anyone else on the network.
Dryja used the Uber example to make this point:
“Customer opens a channel with Coinbase and then Coinbase has a channel open with Uber, and so when they want to pay Uber, they just say, ‘Hey, Coinbase. Please forward this to Uber.’ One channel is enough to pay everyone, really.”
A user on the Lightning Network needs only to open up a channel with one other user to gain access to millions of others.
When Are Your Funds Actually Locked Up?
Although funds aren’t necessarily tied-up all the time on the Lightning Network, there are still instances where things can go wrong (though not completely wrong).
“The only situation where there is this structure where it feels locked up is if your channel counterparty is not really online all that much or doesn’t want to route, which is why there is that cost if you want to be a ‘hub’ ‒ because you’re likely to get more of those types of users. It is costly to be that, and that’s why there is that disincentive to operate in that way.”
In other words, if someone who is supposed to be routing payments for you decides they don’t want to do that anymore, they can deny your ability to send transactions on the Lightning Network. This would force you to close the channel, which could lock up your funds for a period of time. As Poon mentioned, there is a disincentive to act this way because you have to make some bitcoins available on the network to be able to route payments in the first place.
How Coinbase Can Help in the Early Days
Poon also talked about how Coinbase can help with user adoption of the Lightning Network in the early days. He noted that funds on the Lightning Network can be used to make on-blockchain transactions ‒ albeit with the help of a third party.
“You make the payment inside Lightning. You send it to Coinbase, and then Coinbase makes the on-chain transaction on their behalf. What happens is, at that point, the user is trusting Coinbase to some marginal level.”
Poon added that this sort of functionality would be helpful during the early days of the network when not everyone is already on board. He also stated that Coinbase would be well-suited to act as a bridge between the Lightning Network and the blockchain during this period of time. The only limitation with this setup is that doing extremely low-value “dust” transfers from the Lightning Network to the blockchain would not work.
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, NASDAQ, RT’s Keiser Reportand many other media outlets. You can follow @kyletorpey on Twitter.
The post Bitcoins Are Not Tied Up on the Lightning Network, Say Creators Poon and Dryja appeared first on Bitcoin Magazine.